Edward Winters, CPPM CF

Lockheed Martin Missiles & Fire Control

July 26, 2011

CONTRACTOR LIABILITY A LOOK BEYOND 52.245-1

252.228-7001Ground and Flight

Risk

52.246-23, -24 & -25Limitation of Liability

52.232-16 & 32Progress/Performance

Payment

52.247-29 thru -38F.O.B.

52.237-2Protection of Government Buildings,

Equipment and Vegetation

Scenario’sScenario #1

Scenario #2

Scenario #3

Scenario #4

Scenario #5

Scenario #1

Smith Associates Manufacturing company has a FP contract with

the 52.232-16 Progress Payment Clause. During contract

performance the company has a break in that resulted in severe

damage to several high dollar parts procured on the contract that

are needed to complete production. All progress payments have

been received and 50% of the deliverables have been completed.

QuestionsWho is liable for the repair or replacement,

the contractor or government?

How much?

52.232-16(e) Risk of Loss. Before delivery to and

acceptance by the Government, the contractor shall bear the risk of loss for property, the title to which vests in the Government under this clause, except to the extent the Government expressly assumes the risk…….

52.232-16(e) ……. The Contractor shall repay the

Government and amount equal to the unliquidated progress payments that are based on costs allocable to property that is lost, stolen, damaged or destroyed.

Note: Liquidation occurs when the contractor makes delivery

of end items called out in the contractReturn to Scenario’s

Final Quiz

Scenario #2ABC Company has a FP negotiated contract to build and

deliver 80 whatnots to the US Government valued at $100K each. Upon acceptance (signed DD250) of these whatnots the USGovernment requests the contractor to hold them in storage for several weeks while the Government receiving activity finishes a new facility that will store the delivered property. While moving them to storage the ABC Company Expeditor drops the pallet which results in damage to the whatnots totaling $1M.

QuestionsWho is liable for the repair or replacement

of the whatnots, the contractor or Government?

F.O.B. Clauses 52.247-29 thru 38

All F.O.B. clauses contain the same language regarding liability

“(b) the Contractor shall…. (4) Be responsible for any loss of and/or damage to the goods –

(i) Occurring before delivery to the carrier;(ii) Resulting from improper packing and

marking; or(iii) Resulting from improper loading, stowing,

trimming, blocking and/or bracing of the shipment, if loaded by the contractor on or in the carrier’s conveyance

QuestionsWho is liable for the repair or replacement

of the whatnots, the contractor or Government?

What if that Whatnot is ST/STE acquired or fabricated against a CLIN on a FP contract and shipped-in-place for use on the contract?

What if it is a deliverable shipped-in-place for storage on a storage contract?

Return to Scenario’s

Final Quiz

Scenario #3Smith Vehicle Manufacturer Co. has a contract to manufacture and deliver new armored vehicles to the US Army with a CLIN value of $250K each. As part of this contract several major components including Heavy Duty Batteries are furnished to the contractor by the Government forinstallation in the deliverable. After the DD250 is signed the contractor starts loading a vehicle on a flatbed, finds there are no brakes and proceeds to drive off the flatbed resulting in Substantial damage to the front end of the armored vehicle.

Upon investigation it is found that the government furnished heavy duty batteries are a new design that have never been fielded and have a defect that resulted in battery acid leaking on and through the front brake cables.

QuestionsWho is liable for the repair or replacement,

contractor or the Government?

What clause is applicable?

FAR 46.8 Contractor Liability for Loss of or Damage to Property of the

Government This subpart prescribes policies and procedures

for limiting contractor liability for loss or damage to property of the Government that –

(a) Occurs after acceptance and

(b) Results from defects or deficiencies in the supplies delivered or services performed

46.803 instructs contracting officers to insert 52.246-23, -24 (high value) or -25 as applicable.

52.243-24 Limitation of Liability – High Value Items

(a) Except as provided in paragraphs (b) through (e) of this clause, and notwithstanding any other provision of this contract, the Contractor shall not be liable for loss of or damage to property of the Government (including supplies delivered under this contract) that

(1) Occurs after the Government acceptance of the supplies delivered under this contract; and

(2) Results from any defects or deficiencies in the supplies.

Return to Scenario’s

52.243-24 Limitation of Liability – High Value Items

As with most clauses there are exceptions.

52-243-24 contains language similar to 52.245-1 that addresses

willful misconduct or lack of good faith on the part of any of

the Contractor’s managerial personnel and further describes

who within the company comprises managerial personnel.Final Quiz

Scenario #4

The Contracting Officer notified a contractor in writing that

three aircraft being stored outside were in close proximity to a

fueling station which presented an undue risk in the event of an

explosion/fire and requested that the aircraft be relocated to a

safe distance of 200’. Twenty (20) days later the aircraft had not

been moved and an explosion of the fueling station occurred that

destroyed the three aircraft.

DFAR 252.228-7001 GROUND AND FLIGHT RISK

Under normal circumstances when the Contractor is following all requirements of the clause

they have a Liability ceiling for loss, damage or destruction to aircraft as defined in the clause.

(f) Contractor’s share of loss and Contractor’s deductable under the Government self-insurance

(1) The Contractor assumes the risk of loss and shall be responsible for the Contractor’s share of loss under the Government’s self insurance. That share is the lesser of –

(i) The first $100,000 of loss or damage to aircraft in the open, during operation, or

in flight resulting from each separate event, except for reasonable wear and tear and

to the extent the loss or damage is caused by negligence of Government personnel; or

(ii) Twenty percent of the price or estimated cost of this contract.

NOTE: Insurance costs to cover these costs are unallowable.

DFAR 252.228-7001 GROUND AND FLIGHT RISK

This clause contains many variables that affect liability.

For this scenario we need to look at the following sections of the clause to

determine liability

(6) “in the open” means located wholly outside of buildings on Contractor’s premises or other places described in the Schedule as being “in the open”. Government furnished aircraft shall be considered to be located “in the open” at all times while in the Contractor’s possession, care, custody, or control.

(b) Combined Regulations/instruction. The Contractor shall be bound by the operating procedures contained in the combined regulation/instruction entitled “Contractor’s Flight and Ground Operations” (Air Force Instruction 10-220, Army Regulations 95-20, NAVAIR Instruction3710-1 (Series), Coast Guard Instruction M13020-3, and Defense Contract Management Agency Instruction 8210.1) in effect on the date of contract award.

DFAR 252.228-7001 GROUND AND FLIGHT RISK

(d) Conditions of Government self-insurance. The Government’s assumption of risk for aircraft in the open shall continue unless the Contracting Officer finds that the Contractor failed to comply with paragraph (b) of this clause, or that the aircraft is in the open under unreasonable conditions, and the contractor fails to take prompt corrective action.(1)The Contracting Officer, when finding aircraft in the open under unreasonable conditions, shall notify the Contractor in writing of the unreasonable conditions and require the Contractor to make corrections within a reasonable time.(2) Upon receipt of the notice, the contractor shall promptly correct the cited conditions, regardless of whether there is agreement that the conditions are unreasonable.

DFAR 252.228-7001 GROUND AND FLIGHT RISK

(3) If the Contracting Officer finds that the Contractor failed to act promptly to correct the cited conditions or failed to correct the conditions within a reasonable time, the Contracting Officer may terminate the Government’s assumption of risk for any aircraft in the open under the cited conditions. The termination will be effective at 12:01 a.m. on the fifteenth day following the day the written notice is received by the contractor.

DFAR 252.228-7001 GROUND AND FLIGHT RISK

(4) If the Government terminates its assumption of risk pursuant to the terms of this clause -

(i) The contractor shall therefore assume the entire risk for damage, loss , or destruction of, the affected aircraft;

(ii) Any costs incurred by the contractor (including the costs of the Contractor’s self insurance, insurance premiums paid to the insure the Contractor’s assumption of risk, deductibles associated with such purchased insurance, etc.) to mitigate its assumption of risk are unallowable; and

(iii) The provisions of the Government Property clause of this contract are not applicable to the affected aircraft

DFAR 252.228-7001 GROUND AND FLIGHT RISK

Scenario #4The Contracting Officer notified a contractor in writing thatthree aircraft being stored outside were in close proximity to a fueling station which presented an undue risk to the

Government in the event of an explosion/fire and requested that the

aircraft be relocated to a safe distance of 200’. Twenty (20) days later

the aircraft had not been moved and an explosion of the fueling station occurred that destroyed the aircraft.

Final Quiz

Return to Scenario’s

Scenario #5

A contractor has a service contract at White Sands Missile Range tomaintain the grounds and buildings which includes everything from landscaping to window washing. Early one morning one of the

service contractor employees arrives and begins cutting the lawn in front of the Administration office. As the worker is driving the mower an officer arrives that the worker finds rather attractive. A little

distracted the service contract employee proceeds to mow over several award winning rose bushes and hits the Government owned automobile of a

3 Star.

QuestionsWhat is the gender of the service contract

employee and the officer?

Who is liable for the repair or replacement, contractor or the Government?

What clause is applicable?

Protection of Government Buildings, Equipment and Vegetation52.237-2

The contractor shall use reasonable care to avoid damaging existing buildings, equipment and vegetation on the Government installation. If the Contractor’s failure to use reasonable care causes damage to any of this property, the Contractor shall replace or repair the damage at no expense

to the Government as the Contracting Officer directs. If the Contractor fails or refuses to make such repair or

replacement, the Contractor shall be liable for the cost, which may be deducted from the contract price.

Return to Scenario’s

Final Quiz

QUESTIONS

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QUOTE OF THE DAY

“I would rather entertain and hope that people learned something than educate

people and hope they were entertained.”

Walt Disney